Ukraine - Economic analysis of government policies, investment climate and political risk.






UKRAINE: Economic Policy Analysis

This site presents an analysis of the Ukraine government's economic policies compared to a revised list of 34 economic policies as prepared by Margaryta Sysenko with the McKeever Institute of Economic Policy Analysis (MIEPA) in Fall 2011.

To read the analysis scroll through this site. To learn more about the background policies, click here: Introduction and Policy Recommendations

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The study is by Margaryta Sysenko, a Ukrainian native who currently [December 2011] lives in San Francisco; this study presents the Ukrainian government's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:


5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2011. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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        1               2.5           7.5             15.0        50 %

        2               2.0           6.0             15.0        40

        3               1.0           3.0             15.0        20

        4               1.5           4.5             15.0        30

        5               2.0           6.0             15.0        40

        6               3.0           9.0             15.0        60

        7               1.5           4.5             15.0        30

        8               2.0           6.0             15.0        40

        9               2.0           6.0             15.0        40

        10              4.5          13.5             15.0        90

        11              1.0           3.0             15.0        20

        12              4.5           9.0             10.0        90

        13              1.0           2.0             10.0        20

        14              2.2           5.0             10.0        50

        15              4.5           9.0             10.0        90

        16              2.0           4.0             10.0        40

        17              1.0           2.0             10.0        20

        18              1.0           2.0             10.0        20

        19              2.0           4.0             10.0        40

        20              4.0           8.0             10.0        80

        21              1.5           3.0             10.0        30 

        22              2.0           4.0             10.0        40

        23              3.5           7.0             10.0        70

        24              1.5           3.0             10.0        30

        25              1.0           2.0             10.0        20        

        26              1.5           3.0             10.0        30

        27              1.0           2.0             10.0        20

        28              2.5           5.0             10.0        50

        29              2.0           2.0              5.0        40 

        30              1.5           1.5              5.0        30

        31              1.0           1.0              5.0        20

        32              3.0           3.0              5.0        60

        33              2.0           2.0              5.0        40

        34              1.0           1.0              5.0        20

   TOTAL               70.2         153.5            365.0        42.1%
                      =====        ======            =====        =====


1. Freedom from internal control: 2.5

Ukrainian citizens are able to move freely inside or outside the country and they are free from government agencies’ control. Ukrainians can be engaged in all sorts of activities as long as they are not prohibited by law. Unfortunately, Ukraine is suffering from corruption that pervades all levels of society. That is why very often entrepreneurs have to get permission before commit to any wealth creating activities.

Sources: 1.; 2. Personal

2. Freedom of speech: 2.0

Constitution of Ukraine guarantees to everyone the right to freedom of thought and speech, and to the free expression of his or her views and beliefs. Unfortunately, in a meantime the freedom of speech is one of the most vulnerable rights in Ukraine. The traditional media such as TV and broadcasting in most cases depend on the official pro-presidential propaganda. One of the visual proofs of political censorship in Ukraine is the practice of temniki (guidelines for the content of news reporting) distribution among the top managers of national television stations and newspapers by the Presidential Administration. The censorship effectively denies access to objective information for the majority of the Ukrainian citizens.

Sources: 1. ; 2.

3. Effective, fair police force: 1.0

According to sociological service of Razumkov Center, most of Ukrainian citizens don't approve the way police force protects its citizens and ensure their safety. Ukrainian police is carrying out a culture of impunity leading to the abuse of hundreds of thousands of citizens each year and engaged in acts of corruption. Efforts to investigate offenders in local prosecutor’s courts are not working effectively. Very often local authorities fail to protect the lives of those in custody while accusing the police force of racist targeting.

Sources: 1.; 2.

4. Private property: 1.5

Protection of property rights is weak in Ukraine because judiciary is subject to executive branch and criminal pressure, and corruption is significant. Contracts are not well enforced, and expropriation is possible. Initiatives to develop a mortgage market have resulted in a strong increase in the number of mortgages and have laid the legislative and administrative groundwork for a functioning real estate market.

Sources: 1.;2. Personal

5. Commercial banks: 2.0

The Ukrainian banking sector has historically suffered from a number of significant weaknesses, including undercapitalization, weak corporate governance and management, poor asset quality, and even excessive political intervention in some instances. The situation is improving and reforms are continuing. Today, Ukraine’s banks are required to prepare accounts based on International Financial Reporting Standards (IFRS).

Recently most banking services are available in Ukraine, and consumer credit facilities are expanding rapidly. Intermediation costs remain fairly high, although the presence of Western banks, particularly in retail banking, should force the sector to become more efficient over time.

Sources: 1.; 2. Person

6. Communication systems: 3.0

Ukraine's communications infrastructure is generally well-developed in the cities and tourist areas. Nevertheless, this situation changes dramatically in rural areas and small cities. The National Commission on Communication Regulation of Ukraine is the country's telecommunications regulatory body and is responsible for everything related to telecommunications.

In recent years, Ukraine's telephone network has been upgraded and new equipment installed. Digital telephone exchanges are used extensively in large cities and suburban areas, but telephone connections are sometimes a problem in rural areas and smaller towns.

Mail is an inexpensive but kind of slow form of communication in Ukraine.Mass media is a vital method of dispensing information and news to the population. It is also a great means of entertainment.Internet in Ukraine has grown quickly in urban areas. Unfortunately, Internet connection speeds tend to be slow.

Sources: 1. ; 2. Personal

7. Transportation: 1.5

Ukrainian transport system falls short of the developed European transportation in terms of quality, service selection, and price.


-poor level of technology and organization of the transportation process;

-low level of transport service;

-slow development of transport technologies, including logistics and lack of integration with manufacturing, trading, warehousing and customs technology;

-lack of efficiency of financial and economic mechanisms that encourage the provision of investment in transport;

Gap between the legal basis of the transport operation and the general trend of legislation in the country is becoming bigger and bigger every day. That is why the first thing that needs to be done is to improve legislative and regulatory framework that governs the functioning of transport in a market economy.

Sources: 1.; 2. Personal

8. Education: 2.0

According to the World Economic Fund, Ukraine gets 46th position out of 133 countries for a quality of education. Although the level of education in Ukraine is better than in other Post-Soviet countries, the Ukrainian diplomas are not appreciated in Europe or the USA.

The weakest points of Ukrainian system of education are: low wages that don’t meet the needs of a normal life; outdated approaches to learning; archaic system of governance of the educational sector, the lack of efficient financial management; catastrophic lag of educational life from community needs.

Sources:1.; 2. Personal

9. Social Mobility: 2.0

Ukraine entered the stage of destruction of democratic governance and experienced transition to the stage of an oligarchic and class dictatorship – bureaucracy. The more connections person has, the better position he/she will get in Ukrainian society. That is why education is important but bachelors or master’s degrees don’t guarantee well-paid jobs.

Ukraine has been known as one of the Eastern European countries with free and well-developed education system. Unfortunately, this situation changed for the past ten years. Even though, children have an opportunity to attend elementary, primary and secondary school for free, most of students have to pay for higher and postgraduate education (unless they are sponsored by the government) and prices are far from being affordable.

Sources:1. 2. Personal

10. Freedom from outside control: 4.5

The Constitution of Ukraine guarantees full protection of all Ukrainian citizens from any types of control of any other country. Therefore, all Ukrainian citizens are subject to the laws of their own country.

According to the Constitution:

- Ukraine guarantees care and protection to its citizens who are within or beyond its borders.

- Citizens have equal constitutional rights and freedoms and are equal before the law.

- A citizen of Ukraine shall not be expelled from Ukraine or surrendered to another state.

Sources: 1.; 2. Personal

11. Protection of Domestic Enterprises: 1.0

According to Ukrainian state service statistics, exports grew by 39.4%, imports - by 44.6% compared with the first half of 2010. Exports of goods and services in Ukraine for the first half of 2011 totaled $ 43,977 billion, imports - $52,082 billion. Therefore, it becomes absolutely clear that country is experiencing trade deficit of $8.105 billion due to lack of restrictions that would protect domestic companies from foreign competition.

Sources: 1.; 2. Personal

12. Foreign currency transactions: 4.5

Foreign currency operations are regulated by the decree of The Cabinet of Ministers of Ukraine, “On System of Currency Regulation and Currency Control”, as well as a number of implementing rules issued by the NBU. According to these regulations, payments in foreign currencies between residents within the territory of Ukraine are generally prohibited (although there are some exceptions, such as bank loans). A number of foreign currency transactions may only be undertaken if an individual license is obtained from the NBU.

Sources: 1.; 2. Personal

13. Border control: 1.0

There is the high level of corruption among officials who are authorized to monitor compliance with the legislation in the Customs Policy. That is why Ukraine is experiencing widespread smuggling of goods across the country’s customs borders. While smugglers get significant revenues, interests of the whole country suffer from evidential damages. Smuggling activities become organized and start threatening state's economy. About 70% of illegal imports get to the country through ports.

Sources: 1.; 2. Personal

14. Currency: 2.5

Even though hryvnia (UAH) has been national currency of Ukraine since September 2, 1996, and all foreign currencies have to be converted into the national currency for use within the country, the most prevalent currency for commerce is US dollar.

National Bank of Ukraine is the only one institution that can legally issue Ukrainian currency. In the period from 21 April 2005 through 21 October 2008 the exchange rate was pegged at around UAH 5/USD 1. In 2008 when global financial crisis hit, hryvnia was devalued to about 8/USD 1. Due to widely known economic problem called impossible trinity, a fixed exchange rate and free movements of capital (i.e. cross-border lending) have undermined National Bank of Ukraine's ability to conduct independent monetary policy.

Sources: 1.; 2. Personal

15. Cultural, language homogeneity: 4.5

There is complete language and cultural homogeneity in most parts of rural areas. Even though certain ethnic conflicts can appear, they remain peaceful most of the time.

About 75% of the population of the country is ethnic Ukrainian. The largest minority group is the Russians at about 20%. Belarusians, Bulgarians, Poles, Hungarians and Romanians make up the other major minority groups. Ukrainian is the official state language. The language shares some vocabulary with the languages of the neighboring Slavic nations, most notably with Russian, Belarusian, Polish, and Slovak.

Sources: 1.; 2. Personal

16. Political effectiveness: 2.0

According to Ukrainian Deputy Prime Minister Viktor Tikhonov, in 2011-2015 rural areas will receive state support for social and economic development. The purpose of this program is to promote the development of infrastructure of small cities, and to improve quality of services provided by local governments. Government is trying to improve financial support of rural areas and also to create conditions in order to attract investments that will contribute to their development.

Unfortunately, while authorities are trying to implement this program, majority of rural areas are affected by lack of an improved regulatory framework. There is also no effective mechanism for financial support in the development of rural planning and land use documentation, implementation of investment projects in the field of housing and communal services.

Sources: 1.; 2. Personal

17. Institutional stability: 1.0

According to the World Economic Forum, business environment in Ukraine is estimated as the worst among the post-socialist countries of Europe.

In terms of development society's core institutions Ukraine holds 120th position among 139 countries. There are several reasons for that: low level of public administration, ineffectiveness of public finances, weak protection of ownership and corporate rights, frequent violation of laws by the authorities, political dependence on the decisions of the judiciary officials and oligarchic clans. In terms of macroeconomic stability, Ukraine holds 106th place. The impact of financial instability caused: a high level of dollarization and shadowing of the economy, a high probability of sovereign default risk, a huge budget deficit and the Pension Fund.

Sources: 1.; 2. Personal

18. Honest government: 1.0

Corruption in Ukraine has become one of national security threats. Law enforcement agencies include several reasons that are substantially increase the level of corruption in Ukraine: the lack of adequate verification of professional and moral qualities of people admitted to the civil service, the existence of the shadow economy

In fact, society divides into two subsystems: formal and informal. They are almost equal in their influence. Therefore, society and the state as a whole have a negative impact of corruption. It undermines the economic foundation of the state, blocking the entry of foreign investments; it provokes distrust of the people to government authorities. Corruption has a negative impact on the international image of Ukraine, leads to a "shadowing" of the economy, contributes to the growing influence of organized criminal groups

Sources: 1.; 2. Personal

19. Common laws: 2.0

According to law, all Ukrainian citizens have the right to a fair, timely and open trial. Unfortunately, this is not respected in practice. There is a lack of public trust in court decisions and the judicial system as a whole, insufficient financing of the court system, an inefficient and opaque process for appointing judges, as well as corruption. Pressing problems also include insufficiently trained judges, low salaries and dependence on the executive branch in matters of enforcement. In addition, there is a lack of procedural transparency. Therefore, the national judiciary finds its independence eroding, with the judiciary under constant threat from individual high-ranking public officials and state bodies.

Sources: 1. ; 2. Personal

20. Central Bank: 4.0

National Bank of Ukraine is a single center, which has a monopoly of money issue in the country; it also maintains national gold reserves. It has an autonomous status in the power structure. Freedom of power is one of the most important features of the National Bank of Ukraine, which indicates the right of the central bank to establish formal binding rules of conduct and ensure their implementation through funds provided by the laws of influence. The Central Bank is sufficiently independent from the executive agencies. Bank also works with the banking system and credit institutions of the country.

Sources: 1.; 2. Personal

21. Domestic budget management: 1.5

Government spending in Ukraine has not been kept in line with revenues, and the government continues to impose a much heavier burden on economic activity of the country. In January-September of 2011, Ukraine collected 285,073 billion hrn in revenues and has 325,529 billion hrn in expenditures. Budget deficit is set at around 38 billion 843 million hrn.

Ukraine's state budget deficit, during the same period in 2010, reached 64.417 billion hrn ($ 8.1 billion), surpassing the 19 percent statutory rate, and 81 per cent - shortfall in 2009, reported the Ministry of Finance.

In 2009, budget deficit reached 35.52 billion hrn, or 3.9 percent of GDP, which declined by almost 15.0 percent the previous year.

Sources: 1.; 2. Personal

22. Government debt: 2.0

According to International Monetary Fund, national debt of Ukraine increased to 42.4% of GDP in 2011 compared with 41.7% of GDP at the end of 2010 and 35.3% - at the end of 2009. According to the report that is published on the IMF website, the national debt of Ukraine can attain 43.7% of GDP, and then begin to decrease.

Sources: 1. ; 2.Personal

23. Economic statistics: 3.5

There are a lot of not only government organizations but also independent agencies, magazines, newspapers that provide observers with information that considered being accurate. These sources contain data regarding quantity and quality of statistics that depict business opportunities in the country. There is no doubt that sometimes government sources of information might be partially discrete with real numbers but with independent sources together they give people pretty good idea about business environment in Ukraine.

Sources: Personal

24. Protection of public health and safety: 1.5

Infant mortality rate in Ukraine: 8.54 deaths/1,000 live births. The newborn death rate in the U.S. is now 4.3 per 1,000 live births.

There is social instability and declining living standards in Ukraine.

In Liechtenstein, San Marino, on every thousand children die only two. In Sweden, Singapore, Iceland and Andorra - three of them die. In Ukraine, the mortality rate remains high, when in the EU die two children in Ukraine – die five.

In Ukraine, the epidemic of tuberculosis has passed into the category of a national problem, because the number of officially tuberculosis patients, consisting in the dispensary over 500 thousand people. It exceeds 1% of the population of Ukraine.

Sources: 1. 2. Personal

25. High wage policies 1.0

According to experts, wages Ukrainians hopelessly behind the rise in prices for food and other necessities. Thus, in 2010 the cost of living rose by a third, and the size of salaries increased by only 11%.

In 2011, minimum wage is $125 and an average Ukrainian makes $345 a month. It’s at the time when rent of 1-bedroom apartment is $500-$600 per month and in order to go on vacation 1 person needs at least $800-$1000. Comparing the same value of the average monthly food basket in April of 2010, with a food basket in April of 2011, it’s not hard to calculate that the prices of basic products as a whole grew by 28.5%. If a grocery basket value is added to the average monthly cost of gasoline for one car and the cost of utilities for a three-bedroom apartment, it turns out that whole life in the country has risen almost by 31%.

Resources: 1. 2. Personal

26. Environmental protection 1.5

The current environmental situation in Ukraine can be characterized as a crisis emerging over a long period of neglect due to the objective laws of development and reproduction of natural-resource sector of the country.

In order to get better environmental situation government has to mobilize material, financial, scientific and technical resources to meet the challenges of environmental protection and achieved certain results in this direction. It is the state creates conditions for the activities of firms and individuals in order to maintain quality of the environment in which people live. Government needs to set up general principles and objectives of public authorities on environmental matters, which should provide a conceptual uniformity of legislation in this area, to identify key actions and organs that carry it. There is lack of regulations that manage the main activities of the state in environmental protection, namely the introduction of environmental standards, monitoring, management development and implementation of pollution control environment, organization of scientific research on environmental issues fiscal activities, etc

Resources: 1. 2. Personal

27. Strong army: 1.0

Because of corruption, Ukrainian army is not combat ready, state budget loses billions, and the Ministry of Defense property goes to the merchants.

Ukrainian Army is on the verge of destruction due to the fault allocated to the defense budget, released, in 2009, the press service of the Ministry of Defense. The Ministry stated that the financing needs of the army violate Ukrainian law on which the army needs to be allocated 3% of GDP. In 2009 it was allocated 0.83%. And these funds are received irregularly, leading to inability to pay even the energy bills and utilities. More than 70 military facilities have been disconnected from electricity, including base defense. Ukraine is not able to meet 75% of international agreements. In 2010, Ukrainian army needed around $4.05 billion for its development and around $2.04 billion just for its survival. Unfortunately, only $1.46 billion was allocated.

Sources: 1. 2. Personal

28. Foreign trade impact: 2.5

When imports and exports are added together and result is divided by Ukraine’s current GDP of $39,183 billion, it becomes clear that Ukraine’s total foreign trade account is 40.7% of GDP. It means that a significant amount of country’s spending on consumer and investment goods are production costs of foreign GDP.

Exports of goods and services in Ukraine for the first half of 2011 totaled $ 43,977 billion, imports - $52,082 billion.

According to state service statistics, compared with the first half of 2010 exports grew by 39.4%, imports - by 44.6%. Therefore, imports of goods and services exceeded exports by $8.105 billion.

Sources: 1. 2. Personal

29. Management of foreign currency budget: 2.0

In January-August, imports of goods and services in Ukraine exceeded exports by $8.105 billion.

According to State Statistics Service, during the reporting period balance of merchandise trade declined to $3.638 billion over the same period in 2010 - $4.467 billion.

In January-August 2011, exports of goods increased by 39.4% to $43.977 billion, compared with January-August 2010.

In January-August 2011 imports of goods increased by 44.6% to $52.082 billion.

In 2010, imports exceeded exports by 9.309 billion dollars.

In 2010, the foreign trade deficit in goods reached $ 9.309 billion.

In 2011, deficit of Ukraine's foreign trade might increase to $ 6.84 billion compare to 2010, due to the fact that Ukrainian economy is recovering from the crisis and rising incomes stimulate the growth of imports, whereas exports for the Ukrainian situation is unstable.

Sources: 1.; 2. Personal

30. Layers of collective action: 1.5

Ukraine is a presidential parliamentary republic, with the authority divided between the President (Head of the executive power), Verkhovna Rada (legislative power, Parliament) and court system. People vote only for the President, Prime Minister, mayors and some other head authorities. Unfortunately, in Ukraine people don’t have a chance to elect city councils or members of the school boards, they basically can’t influence or manage community activities. In this case, it’s obvious that state authorities have full control over local authorities, and local authorities have full control over community authorities.

Source: Personal

31. Pro- business climate: 1.0

Money is everything in Ukraine. The more money people have, the more powerful they become. There are no rules in a business world. Before somebody even start to open his/her own business they have to bribe entire system: officials, tax inspection, sanitary and epidemic authority and so on.

In the ranking of Doing Business-2011, prepared by the World Bank and International Finance Corporation, Ukraine holds 145th position, thus, worsened its former position down by 3 points. Banks began to recover only conditionally corporate lending, thereby limiting the ability of investors and their local partners to start a business. Regarding the business climate - corruption, delays in customs and delays in VAT refunds have become even more rampant.

Sources: 1.; 2.Personal

32. Government enterprises: 3.0

In Ukraine state-owned enterprises can be classified into two groups:

1. Commercial partnerships with the state share exceeding 50% of authorized capital

2. State unitary (100% state owned) enterprises authorized to possess, use and dispose property as well as to conduct operational management.

State-owned enterprises play important role in Ukrainian economy. There are 14938 state enterprises in Ukraine or 5,6% of all enterprises. The state also manages 2392 blocks of shares belonging to the state. In 2008 state enterprises got 25,4 billion UAH in revenues, which makes up 18,4% of total revenues of enterprises of all forms of ownership. The share of state enterprises in total fixed capital is exceptionally high: as 01.01.08 depreciated cost of fixed assets of state enterprises made up 205,9 billion UAH or 52,3% of fixed assets value belonging to the enterprises of all forms of ownership. In 2008 state-owned enterprises earned 6,58 billion UAH in net profits or 53,5% of total amount of profits in the economy. Unfortunately, efficient system of management of state assets has not been created so far. The financial relationships between the state and enterprise fully or partially owned by the state have remained indeterminate and non-transparent as well.

Sources: 1. 2. Personal

33. International security agreements: 2.0

In 2011, Ukrainian government has approved a new military doctrine. New doctrine also confirms Ukraine's non-bloc status. In July 2010, President Viktor Yanukovich signed a document that canceled the country’s previous plans to join the North Atlantic alliance. According to the doctrine, the policy of not joining any military coalitions is an important factor that reduces military and political tensions in the region. This document proclaims that: “Ukraine does not consider any state (coalition of states) as its military enemy, but will consider a potential military enemy the state (coalition of states) whose actions or intentions indicate a threat of use of military force against Ukraine,”.

For comparison, Russia and its allies believe that countries-members of the Collective Security Treaty Organization (CSTO): Belarus, Kazakhstan, Tajikistan, Uzbekistan, Armenia- create a common defense space between each other. New doctrine notes that a military aggression against Ukraine in the near future is unlikely. But if Kiev realized that a conflict is inevitable, it will seek help of the UN Security Council. Ukraine also counts on Russia, USA, UK, Germany, France and China because (according to the Budapest Memorandum) they promised to defend Ukraine after it renounced nuclear weapon.

Sources: 1.; 2.

34. Protection of domestic enterprises from government mandated costs: 1.0

According to the rating "Paying Taxes 2010", compiled by the World Bank, the Ukrainian tax system is one of the most burdensome in the world. Therefore, it holds 181st place out of 183 countries. According to the estimates of the World Bank, there are 135 tax payments per year that Ukrainian enterprises have to pay to the federal budget. Whereas in Sweden - two payments, in Hong Kong – three, in Norway – four, in China, which happens to be a model for many reformers- five. Imbalances of the tax system in Ukraine pose uneven tax burden and, consequently, lead to an increase tax evasion, reduce tax revenues. Among the key issues of taxation that hinder business development are instability of tax legislation, lack of transparent and stable "rules of the game", lack of legal safeguards for taxpayers, crude and inconsistent tax legislation .

Sources: 1.; 2. Personal


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